10 April 2014

Why no direct relationship between price and stocks

A great article by Keith Weiner explaining why open interest in gold has fallen but in silver it has increased - hint: to do with profit from carrying gold. Apart from that, it is also useful for those who falsely think that if the price goes up (or down) then open interest should increase (or fall), and also that ETF holdings should increase (or decrease).

It does puzzle me why people think there should be a direct relationship between open interest or ETF stocks and price, given that they don't have any problem understanding that the price of a company's shares can go up and down while the number of shares on issues doesn't change.

For a company ownership of shares is just transfered between buyer and seller and that doesn't drive price. Price is a function of there being more buying pressure resulting in buyers not being willing to sit around waiting for people to accept their bids and instead accepting seller's offers (and vice versa).

The same can happen with precious metal ETFs. ETFs shares are only created or redeemed if the person on the other side of the trade is someone with no interest in the ETF (ie a market maker). Where existing holders sell to new buyers no new shares need to be created, yet the price can still go up if the buyers are willing to accept the seller's offers (and the non-market maker sellers are adjusting their offers to match gold prices on Comex or the spot market.

Also, check out Warren's latest bullion bars project post, where he notes that 70% of bars added to GLD during 2013 where previously in the GLD list, demonstrating that "there is a really large stock of gold in London and that it doesn't necessarily all vanish instantly to China". He also predicts the return of specific bar numbers by July 30th - now that's a real forecast, no vague hedged cop out wording.

49 comments:

Kid Dynamite said...

bron, you failed in this post. it should have been two words.

title: "Why is there no direct relationship between price and stocks?"

post body: "cartel manipulation"

you're welcome.
-KD

Anonymous said...

So long as the naked paper short Comex tail continues to wag the Physical dog, the Cartel will continue tio be able to manipulate prices. Wake me up when China is ready and places an 8K contract long and stands for delivery. Then we will see what is what and just how much Physical Gold is available for delivery.

obakesan said...

"it does puzzle me why people think there should be a direct relationship between open interest or ETF stocks and price, given that they don't have any problem understanding that the price of a company's shares can go up and down while the number of shares on issues doesn't change. "

To be honest that puzzles me too. However as to why the stock price of a company should change so radically when its fundamentals don't is of course an interesting study in herd behavior too.

I think its a fundamental problem with the stock market when share prices can be moved down by "sentiment" and then a perfectly functional company can be gutted and sold off in parts because of a takeover.

Seems "broken" in my view.

Jake said...

"...for those who falsely think that if the price goes up (or down) then open interest should increase (or fall)..."

Well---finally! Bron posts something correct and worth discussing. "those people (Silverdoctors, TFMetals, Jim Willie, SGTReport, Turk, Morgan, Baloney and ESPECIALLY HARVEY ORGAN), who falsely correlate the open interest positively with expected price", are the same hypesters who will stop at nothing to contrive something that want their readers to perceive as an indicator of future upward price expectations.

However, one thing that Harvey does, that no one else religiously follows, except maybe me, (and Jesse), is A POSSIBLE INDICATOR of relative amounts of contracts that stand for delivery each month.

Unfortunately, Harvey doesn't explain it properly and/or put it into its proper context. He equates open interest and those who have already been served as a "total that will stand for delivery", which is of course incorrect, but is still worth observing if one understands how this can be used. Instead, he exclaims that "this is going to be a BIG MONTH!!!" or "gold is scarce!!!", or "December is THE BIGGEST MONTH and Open Interest is at it's highest!!!"

If indeed, Harvey said that those who have already been served + those who have not been served as POTENTIAL totals that could stand with the explanation that this number changes daily and that this total is not accurate as an amount that is ACTUALLY STANDING until the end of the month, he'd not only be accurate, but wouldn't cause people like KD to attack him, (at least on this one subject, as there are so many other reasons to attack him---but that's another discussion suitable for another time).

So, why do I bring this up? Because I keep a daily tally of those who potentially stand. Unfortunately, this number has been fruitlessly unimportant as not enough have ever stood for delivery to make any difference to date.

However, eventually, this number might be useful in the future to monitor comex integrity. This is the only reason why I look at this.

Now, getting back to the open interest totals---Although it's true that there is no direct correlation between increasing OI and price, I believe that relative totals for those standing for delivery can alert someone watching that there might be greater
strain on future comex physical inventory.

Additionally, I still don't agree with Bron that GLD gold doesn't "shore-up" comex inventories as well as satisfy China demand. Thus, because GLD gold still dwarfs comex totals, gold totals in comex inventory have a long way to go before any acceptable strain is evident.

Jake said...

I hate making typos..."...to contrive something that want their readers..." should read: "to contrive something THEY want their readers..."

Jake said...

Regarding The GLD Depletion/Repletion, recent inventory totals suggest "shenanigans" to me:

GLD TOTALS IN OZ. OF GOLD
4/10/2014 -- 25,920,819 Oz.
4/11/2014 -- 25,863,016 Oz.
4/14/2014 -- 25,920,817 Oz.

--A two oz. difference? ---After removing and replacing all those "physical" bars?---Very amusing!---Of course, Bron and Warren will say, "Nothing to see here!---MOVE ALONG!" HAHAHAHA!

Anonymous said...

since they post the bar list daily, why not find out the answer instead of jumping to conclusions? I will assume that the likely answer is bars out and back in, same amount of bars and difference is the +/- per bar. Happy to see your info.

Also, how does gld "shore up" comex inventories when the underlying physical bars won't play nice (comex are 100oz vs GLD with 400oz).

Jake said...

James Turk Actually Gets It Right--Excepting, Of Course That He Should Stick To The Facts And Not Hype Price, Because He Still Doesn't Understand What Drives It.: (From Hypester-KWN):

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/4/14_Comex_Casino_Lies_%26_Silver_Skyrocketing_To_New_All-Time_High.html

Turk: “While gold’s open interest has fallen recently, silver’s open interest is doing the exact opposite. It has grown to levels not seen for some time.

"Some reports have tried to explain this surge in open interest by saying that banks are using the futures market to finance their holding of physical silver. This is a common procedure, but only works when silver is in contango, i.e., the futures price is above the spot price. But silver is in backwardation in the front month - and for large trades it appears to be in backwardation up to three months forward - which is the interesting part that I think is misleading so many investors."

"This front-month backwardation is not reflected in Comex settlement prices. The backwardation is only clear when you get quotes to trade physical metal from the bullion banks - one quote for spot and the other one for a month in the future. The price traded on the Comex front month is totally divorced from what is happening in the physical market for silver..."

Jake's Comment--The trouble with reality is that the silver market can experience all the backwardation they can throw at it, unless supply is tight, nothing happens to price --especially when it's being suppressed by banksters.

He does go on to say that silver is in tight supply. I don't think there is any evidence that "all kinds of physical silver" are in tight supply. Only one type: (90% Junk Silver) is in tight supply.

Junk doesn't amount enough to make any difference.

Thus, although Turk is correct, the net effect, and (reality), is that silver prices are probably going to remain sluggishly lower until that elusive trigger occurs. And who knows what or when that happens.

Jake said...

Annon Says: "Also, how does gld "shore up" comex inventories when the underlying physical bars won't play nice (comex are 100oz vs GLD with 400oz).

That's simple---Ship Bars To Switzerland, Convert To .999 Kilos and Ship Anywhere You Want In Asia. (that's takes care of China).

In the USA, do you really think that comex/GLD bars can't be compatible?---Do you believe 400 oz. bars are not comex acceptable? So, every gold bar is 100 oz? And if so, why can't some of those re-melted 400 Oz. bars be recast as 100 oz?

If a bankster comes up to you and tries to convince you that they can't somehow take advantage of GLD bars at the Comex, Do You Believe Him?

Maybe you're a little girl?

Linus (From the Peanuts Halloween Cartoon) said he "thought all little girls believed everything that was told to them".

Anonymous said...

recasting is a possible solution. But really that assumes that comex plays a lot larger role than it does.

mikeyj80 said...

if one is suppressing the price by throwing short contracts at it, they can only artificially and temporarily force a backwardation in the nearby months (yet back months will trade at larger contango). If someone is throwing short contracts at the market, it is likely in the front month, and therefore likely leads more to contango than backwardation.

I agree that only certain kinds of silver appear to be tight, and also agree that those types really dont matter.

jake said...

Regarding backwardation, yes, since significant backwardation can't be achieved except temporarily and only significantly in front months, it just doesn't do anything unless a real shortage existed.

I've talked about "the trigger" before. I suppose a gold shortage could develop if China takes enough from the west, but even GLD has quite a bit.

It'll be quite a long time--maybe 18 months, before we see anything close to a "supply issue" for gold.

However, I've speculated that the GLD inventory could drop to 500 tons by the last quarter 2015 if the current liquidation pace continues. But, speculation aside, no one really knows what could trigger a change in the ability of banksters to manipulate the precious metals paper market.

Jake said...

Rather than backwardation, I like a weighted ave of GOFO as a nice correlation indicator of short-term gold activity. Of course, I don't really care what the paper price is as I know physical markets must eventually drive real prices.

It would be good if I could just take over this blog and post my charts. Then activity would return. However, since Bron owns it, we are slaves to the mundane where cobwebs grow to astronomical proportions.

Jake said...

BTW I read Keith Weiner's posts regularly. He wrote another great article on the likelyhood of the GSR going to 70 well before many thought it possible or who thought the opposite. I'll have to dig up the link. It's an older article if I recall correctly.

Anonymous said...

I'm not sure I agree with this Bron. If someone really wants gold ETFs then they will bid the price of the equity up, so it goes to a premium against the physical gold price. Then the market-makers will have an arbitrage they can make by buying physical gold and issuing ETF equity. This will show as an increase in holdings. The impact came when they did the buying. If no such premium arose then there would be no impact on the gold price?

mikeyj80 said...

Jake, instead of taking this one over, why not just start your own?

Jake said...

who the heck would want to run a blog?---you gotta be outta your mind!

Anonymous said...

Instead of building his own blog and putting in hard work, Jake would just rather troll someone else's blog. It's his only way to have an audience with little effort and no responsibility.

Bron Suchecki said...

Jake,

I have never had to delete comments on my blog except for the obvious spam links.

For the benefit of my readers I want to have a high signal to noise ratio in the comments.

Your creative stuff is off topic and just clogs up the comments and I don't think people should have to wade through it to get to the comments about precious metals.

I'll give you a few days to take a copy of your "work" and then I will delete them and any other comments that are completely off topic.

Jake said...

mission accomplished. My work is done here

mikeyj80 said...

finally

Jake said...

Jake: Oh, please, don't kill me! Please, please don't kill me! You know I love you baby. I wouldn't leave ya. It wasn't my fault!

Bron: You miserable slug! You think you can talk your way out of this? You betrayed me.

Jake: No, I didn't. Honest... I ran out of gas. I... I had a flat tire. I didn't have enough money for cab fare. My tux didn't come back from the cleaners. An old friend came in from out of town. Someone stole my car. There was an earthquake. A terrible flood. Locusts! IT WASN'T MY FAULT, I SWEAR TO GOD!

[Elwood covers his head in anticipation of more gunfire, Jake removes his sunglasses to make a wordless appeal, and the Bron visibly softens]

Bron: Oh, Jake... Jake, You're right I am A Shill After All!...Please Forgive Me!

[Jake Steps over Bron and walks toward the blues mobile
Jake To Elwood] Let's go.

Jake said...


Jake:
All I did was Identify a Bankster Shill!

Emmett:
They got you in jail for that?

Jake:
Yeah, I disrupted his stupid blog, and he didn't like it, so we had some words, and then I just walked out of there. You know me, Emmett, I don't want no trouble. So, I go outside, and this fellow tries to tell me his blog has significance.

Emmett:
You had to expose his shillishness, and prove his blog has no more worth on this planet than a scurvy spider?

Jake: Yes, he's an idiot

Emmett:
They got you in jail for calling a guy an idiot?

Jake:
Well... no, not exactly. Because, see, then cobwebs started to grow and Dracula wouldn't drink his wine, then there was this idea man...

Emmett:
Who is that?

Jake:
The one with the tape recorder.

Jake said...

JAKE: Mr Suchecki, how marvelous it is to see you. You're
looking younger than ever.

Bron: Wait, can't come in here.

JAKE: Nonsense my dear fellow. My brother and I have come to dine, to celebrate my early release from the service of the state.

MR Bron: Wait, let's talk outside, let's have a cup of coffee outside.

JAKE: Why heavens no! We seek a full meal and all the compliments of the house. Come Elwood, let us adjourn ourselves to the nearest table and overlook this establishments board-er-fair ****

[phone rings]

MR Bron: Good evening Chez Paul. Wait, Hey! Uh, sir do you mind calling back in about five minutes please....

{Jake and Elwood seat themselves at a table]

[Jake whistles for service]

JAKE : Give us a bottle of your finest champagne, five shrimp cocktails and some bread for my brother.

WAITER: We have a Dom Perignon.

JAKE: That'll be fine, pal.

MR Bron: Come on, seriously you guys, the Blog here is really
Worthless. The BS never stops. Come on, let's go outside, I'll buy you a cup of coffee.

JAKE: We're getting to the heart of the truth.

MR Bron: Forget it. No way.

ELWOOD: We're on a mission from God.

MR Bron: Cut it out, cut it out. The owners are going to ask me to
call the cops I'll never confess to being a shill.

JAKE: You wouldn't do that to me would you, man?

ELWOOD: He just got out of Joliet. He's on parole. You can't call the cops on him, man.

JAKE: We're exposing shills man.

MR Bron:I said no, absolutely not!

JAKE:If you say no, Elwood and I will come here for breakfast,
lunch and dinner everyday of the week.

Anonymous said...

Jake: My work is done here
*crickets*
Jake: Incessant nonsense

Slow Loris said...

Bron:

I am rather surprised that you haven't done anything yet about all this pollution on your site.

May I remind you of what we did on our ScrewTapeFiles site last year, when we had a persistent poster, who started out with comments that were somewhat interesting and even rather amusing but then became very repetitive and then sometimes really abusive of other posters when he disagreed with them, apparently late in the afternoon or evening, his time, when he and his drinking companion, Mr. Rouge, and become too intimate.

So, we created a 'Sin Bin' thread, where his (and others') objectionable posts could be relocated. Note that they were not deleted from the site, and were still available to those who wished to seek them out. You could call the thread 'Gratuitously Off-topic Posts', or more simply, just 'Jake's Crap'.

I, for one, think that his nonsense really does detract seriously from what you are trying to achieve with your blog, and something does need to be done about it.

SSL

Anonymous said...

agree, throw Jake's crap into the bin. I'd hate to be closely related to him (eg. wife, kids, few friends), as his huge ego must be horrible for them.

Jake said...

What's "interesting to me" is anyone's notion that this blog is the result of Bron trying to "achieve something". Exactly what is that "something" Inquiring minds would like to know.

Also I am pleased that the disrution of this blog which is "of course, an exercise in the art of shilling for the bankster agenda", is continuing even without my brilliant posts which demonstrate the absurd with the application of absurdity.

Jake said...

Regarding "Screwtapes"
Fact 1: Gld contains much less gold today than 1 year ago

Fact 2: The Comex Gold Inventory is much smaller than is was 1 year ago

Question 1: Where is that gold now?
Answer 1: In China
Question 2: Will that gold ever come back?
Answer 2: NO
Question 3: Could two blogs such as "Goldchat" Or "Screwtapes" shill enough BS such that anyone visiting might be convinced that banksters are not part of the fed conspiracy to suppress gold and silver prices by, among other methods, allowing the liquidation of this once western-owned gold and subsequent shipment through Switzerland to China?

Answer 3: For normal truth-seeking indiviuals?--NO---For zombie Screwtape/Goldchat so-called contributors?--Yes

Question 4: What idiot would attempt to explain that no conspiracy exists in the depletion of GLD by contriving a ridiculous "sequencing of bars" video showing that "this bars" might have moved before "that bar"?

Answer 4: Some shill who is not able to see the big picture truth of bankster/government gold and silver price suppression.

Anonymous said...

happy easter

Slow Loris said...

Jake:

Spare us the Catechism lessons, please.

SLL

Jake said...

Okay Slow, I'll rewrite my post especially for the Screwtape Crowd:

Regarding "Screwtapes"
Fact 1: Gld contains much MORE gold today than 1 year ago

Fact 2: The Comex Gold Inventory is much larger than is was 1 year ago

Question 1: Where is that gold now?
Answer 1: In the USA or "Western" locations Like London.
Question 2: Will that gold ever come back?
Answer 2: It's already here, so it doesn't need to "come back"
Question 3: Could two blogs such as "Goldchat" Or "Screwtapes" inform enough minds full of mush such that anyone visiting might be convinced that banksters are not part of the fed conspiracy to suppress gold and silver prices by, among other methods, allowing the liquidation of this once western-owned gold and subsequent shipment through Switzerland to China?

Answer 3: For normal truth-seeking indiviuals?--YES---For zombie goldbugs?--NO

Question 4: What genius would attempt to explain that no conspiracy exists in the depletion of GLD by contriving a wonderful and mesmerizing "sequencing of bars" video showing that "this bar" might have moved before "that bar"?

Answer 4: Some genius who is always able to see the big picture truth. And the truth is that banksters/governments NEVER suppress gold and silver prices.

There---Is that better?

Jake said...

Also, let's remove the typos from the post. Shall we?

Regarding "Screwtapes"
Fact 1: Gld contains much MORE gold today than 1 year ago

Fact 2: The Comex Gold Inventory is much larger than it was 1 year ago

Question 1: Where is that gold now?
Answer 1: In the USA or "Western" locations Like London.
Question 2: Will that gold ever come back?
Answer 2: It's already here, so it doesn't need to "come back"
Question 3: Could two blogs such as "Goldchat" Or "Screwtapes" inform enough minds full of mush such that anyone visiting might be convinced that banksters are not part of the fed conspiracy to suppress gold and silver prices by, among other methods, allowing the liquidation of this once western-owned gold and subsequent shipment through Switzerland to China?

Answer 3: For normal truth-seeking individuals?--YES---For zombie goldbugs?--NO

Question 4: What genius would attempt to explain that no conspiracy exists in the depletion of GLD by contriving a wonderful and mesmerizing "sequencing of bars" video showing that "this bar" might have moved before "that bar"?

Answer 4: Some genius who is always able to see the big picture truth. And the truth is that banksters/governments NEVER suppress gold and silver prices.

Jake said...

Okay---Here are some bearish articles on gold---LET"S GET REALLY BEARISH!---Could gold go to $250 by next month?---MAYBE!

The two most-accurate gold forecasters are holding to their bearish forecasts for 2014 even after the metal posted its best start to a year since 1983.

“I just see this as a corrective move,” said Robin Bhar, the head of metals research at Societe Generale SA in London and the most-accurate forecaster tracked by Bloomberg in the past two years. “We would still want to be bearish gold,” said Bhar, who expects a fourth-quarter average of $1,050.

“I’m a little surprised by the volatility in the market, but it really doesn’t change my overall view,” said Smirk, who expects a slide through the year to a fourth-quarter average of $1,020.

Surprise! Analysts are bearish on gold

Gold Is Toast!' Why It Could Drop to $500: Pro

Gold is a "classic bubble" and could go all the way down to $500 an ounce, Fortress Investment's Michael Novogratz said on CNBC Wednesday.

"I personally think gold is toast," said Novogratz, chief investment officer of the Fortress Macro Fund, part of the $55 billion hedge fund group. "We peaked out at $1,900 two years ago."

IS THAT BETTER?

Jake said...

HERE"S A BEARISH ARTICLE ON SILVER! YAYYYYYYYYYY!
http://www.futuremoneytrends.com/index.php/trend-articles/2013-articles/456-silver-10-and-dow-20000-daniel-ameduris-weekly-wealth-digest

Can silver fall to $10? Yes and here is the scenario where I see that happening, if silver continues to remain bearish while stocks soar, Japan is up 46% year to date, the Dow is at all time highs, and in Argentina where they really take their money printing serious, has become the highest moving market in the world...So these markets clearly have a lot of air under them. If the U.S. markets, for example, saw a crash and silver was trading for under $20, it is very possible that silver would fall to its 2008 low during an event where panic selling hit all assets. I am not saying this is going to happen, but if the Dow goes down in a crash, silver will follow it in my opinion; and if a global crash starts with silver at $20... it won't be pretty.

I still believe that the Dow is headed to at least 20,000, despite the economy being in a depression, the FED and other manipulators are pushing this rally with easy money. Without evengoing into details, does anyone else think it is odd that the Dow never has back to back down days? That any "down" days it does have, are followed with rallies the next day that recover all the losses from the previous day.

MAYBE SILVER COULD DROP TO $5?---MAYBE $2?---WHO KNOWS?

Jake said...

Silver Headed to $5oz.!
http://howestreet.com/2013/06/silver-headed-to-5oz/

Silver has declined from nearly $50/oz. two years ago to under $20/oz. today.

Clearly, the bull market in silver and gold is over, and silver is headed back to five dollars per ounce, and for good reasons.

$5/OA WOW!---Maybe it could go to 50 cents/oz...who knows?---MAYBE ZERO!

Jake said...

AND THEN THERE'S THIS "CONSPIRACY STUFF" EXCERPT FROM MILES FRANKLIN IN TODAY'S ARTICLE BY DAVID SCHECTMAN:

"We have written about this numerous times, but the most important thing you should understand about what happened is that the banks used up 500 tonnes of GLD gold shed by the fund during the engineered price drop, to satisfy Chinese demand.

Jim Rickards reported that the 500 tonnes of gold ended up at Swiss refineries and was re-cast into 1000/oz. bars of .9999 purity and then sent off to China, never to see the light of day again in our lifetime. Since GLD’s gold can be (and is) leased out, this 500 tonnes is no longer available to be re hypothecated to back the shorting of gold on the Comex. "

I'M GLAD THAT SCREWTAPES AND GOLDCHAT ARE HERE TO PUT THE RECORD STRAIGHT!---WHEW!

mikeyj80 said...

anyone heard anything from Jake? Would have expected him back raving and drooling after his comments over the weekend. oh well.

Anonymous said...

classic. These latest posts are obviously coming from jake, but unlike jake's previous rubbish, this story of the blog monster, etc, is actually quite funny. It shows a well developed imagination.

Jake said...

glad you like them, I thought maybe the comments section could be turned over to me where gibberish like this could fill each thread.

Then, this blog would have meaning. However, I believe the evil blog administrator will want to return it to the crashing bore that it was where we read pontifications of a mundane moronic maniac manipulation denier.

Bron Suchecki said...

Jake,

It is a lot easier for me to tick a box in blogger's dashboard and flag your comments as spam than it is for you to create them, so please continue as every time you do so you are telling google that my blog is popular, thereby increasing its ranking in search results and helping me get my message out.

I would suggest that if you think that I'm some shill, then you should do what all the other mainstream goldbug bloggers and commentators do, which is ignore me. They are smart enough to realise that you don't give shills oxygen or pander to their egos by engaging with them.

Jake said...

Well, I guess If I "ignore" you rather than waste your time with gibberish comments, it won't be as fun, but your "blog" will return to it's orginal boring empty morgue with an ave of near- zero views per week. As far as "getting your message out" :

1. No one knows what that is.
2. You're such a bore, you put any potential reader, and they are far and few between, to sleep.

And yes, you are a shill and do not contribute anything to the gold community. Of course neither do the hypey blogs, but I think I've addressed that already.

Anonymous said...

Heat in the kitchen? Don't worry as Bron will either ignore this news or spin it. Deutsche Bank walks....CME considers regulating futures trading positions....no price suppression,,, no no no . That would be against Bankster ethics.

S Roche said...

Bron,

I, for one, think it's time to drop the hammer (of deletion) on Jake.

Before he goes though, I'd like to put him up for the inaugural Dunning-Kruger award, hereafter D-K'd.

Not understanding gold trading yet forging ahead; not understanding Ben Hunt, ditto; not understanding this blog and wearing that as a badge of honour add up to a serious bid for the recognition that being D-K'd bestows.

I think we can recognise in Jake a perpetual striver, worthy of being singled out in this way.

All the best,

Anonymous said...

A MUST read...

http://traderdannorcini.blogspot.com/2014/05/the-gold-cult.html

Anonymous said...

Yes, Trader Dan's comments on gold have some good points. However, folks who hold gold for security, don't see the world in quite the same way as a day trader.

As a day trader, I might hold a position in something for less than 15 mins, brought & sold. And my opinion on folks who hold shares for 12 months or more, is I view them kind of like cult adherents. Their shares are really going to return long term value, etc. Its a cult, a paper cult.

mikeyj80 said...

Bron, silver fix disappearing, is that something or nothing? I assume anyone with physical contracts referenced to the fix will pick another exchange and use that settle to define the contract?

Bron Suchecki said...

Liquidity has value and data has value, someone will step into this void so it won’t bite the dust, there are large volumes traded on the fix in which case there is money to be made and it will be a fight between CME, Reuters and Bloomberg as to who is going to do a fix.

The LBMA guys don’t want to do it because they don’t have the processes and stuff in place to meet the new audit and reporting requirements regulators insist on these days, and the costs of putting that in place for two metals is greater than the profits made out of selling the data, however CME, Reuters and Bloomberg already have that compliance stuff in place so the incremental costs to them of complying is a lot less and so it makes economic sense for them to do it instead.

While we do need some regulation/control on market pricing, I would note that the increased costs of running market reference price process in this new regulatory environment mean that those with scale are favoured and thus it is just another variant on the idea that excessive regulation only benefits large incumbents and is just another form of crony capitalism.

a robot said...



Trading to Influence Gold Price Fix Was 'Routine'

By Xan Rice
Financial Times, London
Tuesday, June 3, 2014

When the UK's financial regulator slapped a L26 million fine on Barclays for lax controls related to the gold fix, it offered more ammunition to critics of the near-century-old benchmark. But it also gave precious metal traders in the City of London plenty to think about.

While the Financial Conduct Authority says the case appears to be a one-off -- the work of a single trader -- some market professionals have a different view. They claim that the practice of nudging a tradeable benchmark to protect a "digital" derivatives contract -- as a Barclays employee did -- was routine in the industry.